Follow
Cost accounting is a subset of managerial accounting that involves analysis of all costs recorded by organizations. This type of analysis can be conducted at the unit, system or project level, and it allows managers to see their organizations’ financial data at greater levels of detail which results in refined financial planning and budgeting.
The research and data modeling activities that are conducted by cost accountants can help managers to identify costs that are associated with redundant processes and activities. Once these activities are consolidated, the resulting cost savings can be invested to generate more profits for the company.
The efforts of cost accountants also contribute to companies’ pricing strategies of products and services.
Here are some of the topics that successful cost accountants study and master throughout their careers.
Process and Job Costing
Cost accountancy has its origins in the manufacturing industry, and many of the costing methods used by cost accountants like process and job costing are directly related to that industry. Within manufacturing facilities, similar items are often mass produced using the same processes and materials. Subsequently, there is no difference in the cost to produce the similar items. When this occurs cost accountants use what is called process costing to allocate associated costs that are recorded over a set period of time to any of those items produced within that time frame. A more refined cost recording technique for manufactured goods is the job costing method. When organizations produce unique items, cost accountants use job costing to assign direct costs like labor and materials to the specific project. The product or job output then has an associated cost for future budgeting and planning purposes.
Standards Costing
When it is not feasible to get actual costs for a host of different items, cost accountants often assign estimated costs based upon historic financial data. These estimates are involved in a process called standards costing. Standards costing is often needed when cost estimators or accountants must submit unit cost figures for budgeting purposes. Because there is nearly always a difference between actual and estimated costs, cost accountants periodically get actual costs for their recorded items and track the variances. The variances show changes to labor and material charges. Tracking trends of labor and material costs allows cost accountants to study the cost behavior of those elements over time and gain sufficient quantitative evidence for modifying the standard costs used for estimating purposes.
Total Cost Assessment
Environmental accounting is a specialty area in which cost accountants can participate. This branch of accounting seeks to analyze all the costs and benefits associated with the implementation of corporate environmental initiatives. These cost accountants conduct what is known as total cost assessments for potential projects which include the evaluation of their direct, indirect, contingent and intangible costs. Subsequently, they present company leaders with recommendations regarding these projects’ short and long term benefits or challenges.
Conclusion
Every organization needs personnel who can help them to improve their financial efficiency. Subsequently, cost accountants support all types of businesses that operate in a variety of industries. Cost accountants can continue to learn and hone their skills by joining professional organizations like the Society of Cost Management and the Institute of Management Accountants. Some organizations like the Institute of Certified Cost and Management Accountants even offer practitioners opportunities to become certified in cost accounting.
You might also like: What is an External Auditor?